15/15 Adjustable Rate Mortgage (ARM)

Key Features

15/15 Adjustable Rate Mortgage

Adjusts only once for the life of the loan

Months

Rate

Points

APR

Payment*

First 180

3.125%

0

3.225%

$428.38

Next 180

3.000%

3.225%

$424.66

*Payments shown do not include taxes or insurance, actual payments may be greater. Rates and offers are in effect as of March 27, 2015, offered for a limited time and subject to change without notice. Example based on $100,000 loan. Other restrictions apply. Rate is variable and can increase by no more than 6 percentage points every 15 years (9.125% for this example). Since the index in the future is unknown, the First Adjustment Payments displayed are based on the current index plus margin (fully indexed rate) as of the date above.

Limited Time Special Offer!

For Purchases & Refinances

Primary Residence & Second Homes (Investment properties are not eligible)

4 Smart Steps to Take Before Buying Your First Home

Becoming a homeowner can be a daunting process for anyone, especially young adults or those without experience making such big purchases. Rushing through this long-term, multi-step financial process -- deciding how much home you can afford, fixing any blemishes on your credit report and saving for a down payment -- can prove tremendously costly. Years before you even think about hiring a real estate agent and starting an in-person home search, you need to take the time to prepare yourself financially.

If you intend to buy a house in the next five years or so, here are four steps to help lead you down the path to homeownership.

1. Consider where you want to live.

Don't buy a home where you live now, just for the sake of homeownership. For many twenty- and thirty-somethings still exploring their career paths, buying a home can really limit their freedom. If you're serious about becoming a homeowner, make sure the city you decide to buy in is a place you won't mind sticking around for a while. Experts often advise would-be buyers to plan on staying in a new home no fewer than five to seven years. "You're going to spend thousands of dollars to get into the home. To get out of it is going to be equally expensive and may possibly cost more when you do it in less than five years or in a down market," says Keith Gumbinger, vice-president of HSH.com, a publisher of mortgage information and rates.

How do you decide which area is best for you to settle down in? You should definitely consider the local job market and cost of living. Other key factors that will likely impact your quality of life: the city's demographics, access to public transportation and the social scene. If you're single, for example, you might be interested in places with an abundance of other unmarried people. Or people with limited budgets might want to look at cities where they can still have a life outside of the office without having to pay a fortune for it (see Best Cities for Cheapskates).

2. Determine how much home you can afford.

Once you've decided where you want to live, use a home search Web site, such as Realtor.com or Trulia.com, to get a detailed look at the market, recommends Eric Tyson, co-author of "Home Buying for Dummies." It'll provide perspective on the types of properties for sale and what sellers are asking for. Seeing exactly how much homes cost will help you determine how much you can actually afford and how much you'll need to save for a down payment. If homes in your desired neighborhood are outside your price range, you can delay buying until you save more money, or you can downsize the type of home you're looking to buy, or search in a different neighborhood.

That's what happened when I embarked on a new home search with my boyfriend last spring in the Washington, D.C., metro area. In the beginning, he was pretty adamant about being in the city -- me, not so much. We soon realized that our list of must-haves (a modern home with three bedrooms, two bathrooms, central air conditioning and designated parking) meant we could only afford a fixer-upper in northwest Washington. Because neither of us is handy -- and I wasn't comfortable buying a place that needed a ton of work -- that wasn't an option. After that reality check, we broadened our search area and settled on a new townhome community located in a Maryland suburb about ten minutes outside D.C. Homes there cost about half as much as comparables we'd seen in the city.

3. Boost your credit.

Your credit score plays an important role in qualifying for a mortgage. A score of 740 or above will help you secure the best interest rates. In the Washington area, for example, that's about 4% for a $200,000, 30-year fixed-rate mortgage with a 20% down payment, according to Bankrate.com. (Look up mortgage rates in your area.) If your score is lower than 740, however, expect to pay a higher rate. For that same loan in the D.C. metro region, if your credit score ranges from 680 to 699, the lowest rate you'd be able to get is about 4.25%.

Many young would-be home buyers might find themselves with blemishes on their credit report, thanks to missed student loan or credit card payments. Lucky for me, I learned long before pursuing homeownership that such behavior comes back to haunt you in the form of a low credit score. I've changed my bad spending habits and boosted my score. If you check your credit report early, you'll have ample time to correct any issues. "What you don't want is to have to address a bunch of mistakes on your credit report while actively looking for a home and trying to get approved for a mortgage loan," says Gumbinger.

Visit AnnualCreditReport.com to get a free report from each of the three major credit bureaus. If you notice a problem in one report, be sure to check with the other two bureaus, too. You can dispute an error by contacting the credit bureau directly. Note that your free credit report does not include your actual credit score. You'll usually have to pay to see your FICO score. At myfico.com, you can get your credit report and FICO score from each of the three credit bureaus for about $20 each. (Your score can vary from bureau to bureau.)

4. Start saving for a down payment.

In addition to building stellar credit, you should also save enough for a down payment of at least 20% of the home price to snag the best mortgage terms. That amount saves you from having to pay for private mortgage insurance, or PMI, which protects the lender if you default on the loan. Even with an excellent credit score, if you put just 5% down on a home that costs $201,700 (the national median existing home price as of April 2014), private mortgage insurance will cost you an additional $92.61 each month, according to HSH.com.

That down payment's not chump change; 20% of $201,700 amounts to $40,340. For many young adults with starting or even mid-level salaries, it can take many years to stash away that much. Start saving now!

You should keep the cash liquid because you're aiming to use it in the next few years. We stored our funds in a regular savings account to give us direct access to it. You might also consider a short-term certificate of deposit. Neither option will earn you much right now, but your money will be safe from market losses and easy to tap as soon as you need it.

What's next?

Once you've completed these steps, you should be ready for the second phase, which includes finding a trustworthy real estate agent, getting preapproved for a mortgage loan, viewing potential homes in person and making an offer on a home. W

Save for a House

Before lenders will approve you for a mortgage, they want some assurance that you aren't going to default on the loan--that you have enough income to pay your mortgage, enough savings for a down payment and closing costs, and a good credit history. The better your credit profile and the bigger your down payment, the lower the interest rate for which you'll qualify. (In early April, the average 30-year fixed rate was 4.3%.)

Lenders size up your "three c's"--credit history (your credit score and your record of debt repayment), capacity (income, savings and investments) and collateral (your down payment and the value of the home you want to buy, after an appraisal). They verify employment for the past two years and try to predict how likely it is that you'll keep your job. If you're weak in one area, strength in the other two or in a spouse's profile may compensate.

To figure out how big a mortgage you can afford, lenders apply payment-to-income ratios. (The majority of banks and credit unions sell the mortgages they originate to Fannie Mae or Freddie Mac--agencies that guarantee the loans made by lenders--and follow their rules.) Your monthly mortgage payment shouldn't exceed 28% of your monthly gross income (before taxes and other deductions). That 28% limit covers principal and interest, real estate taxes, homeowners (hazard) insurance, and homeowners or condo association dues.

Recurring monthly payments for all debts (including student loans, even if they're deferred) shouldn't exceed 36% of your monthly gross income. The Federal Housing Administration (FHA), another loan guarantor, bumps up the ratios for mortgages and all debts to 31% and 43%, respectively (it doesn't include student-loan payments that are deferred for a year or more).

Probably the greatest challenge for would-be home buyers is saving for the down payment. Fannie Mae and Freddie Mac require a minimum down payment of 5% to 10% of a home's purchase price. In early 2014, 10% down on a median-priced home in the U.S. would have required nearly $19,000. Put down less than 20%, though, and you must pay for private mortgage insurance. The FHA allows down payments as low as 3.5% but requires that you pay upfront and annual insurance premiums.

If you've been stashing money in a traditional IRA, you can withdraw up to $10,000 penalty-free for a first-time home purchase (you'll owe taxes on 100% of the withdrawal unless you've made nondeductible contributions). You can always withdraw your contributions to a Roth IRA without penalty or taxes, and you can take up to $10,000 of earnings penalty-free for a first-time home purchase. If your Roth has been open for at least five years, those earnings are tax-free, too.

Or you can generally borrow up to half of the balance of a 401(k), up to a maximum of $50,000, for any reason. The interest you pay on the loan goes back into your account. Your employer may give you up to 15 years to repay the loan if you use the money to buy a home, and the loan doesn't count in the debt-to-income ratio.

What You Need to Know About ARMs

What You Need to Know About ARMsSunday, ‎December ‎15, ‎2013The Editors of Kiplinger's Personal Finance

When you shop for an adjustable-rate mortgage, or ARM, make sure you understand how these features affect the loan:

Adjustment intervals. With an ARM, the interest rate adjusts periodically throughout the life of the loan. The adjustment schedule is set out in the mortgage contract. A loan with an adjustment period of one year is called a one-year ARM, and the interest rate can change yearly. Hybrid ARMs have an initial period during which the interest rate remains fixed and adjusts annually after that. You'll find 3/1 ARMs (the initial rate is fixed for three years), 5/1 ARMs, 7/1 ARMs, and 10/1 ARMs, as well as 5/5 ARMs (the initial rate is fixed for five years and then adjusts every five years). The longer the initial fixed-rate period, the higher the initial interest rate you will pay and the less advantage the ARM offers over a fixed rate of interest.

Index. Each ARM is tied to an index that moves up and down in tandem with the general movement of interest rates--often the London Interbank Offered Rate (LIBOR). The index is used to figure the new loan rate for the next adjustment period. The calculation date -- typically one to two months before the anniversary date of the loan -- is set out in the contract.

Adjustment margin. This is the percentage amount the lender adds to the index rate to get the ARM's interest rate. Look for it in the mortgage contract. The margin amount, commonly one to three percentage points, usually remains constant over the life of a loan. Whatever the margin amount, add it to the index rate at the adjustment anniversary to get a new "adjusted" rate.

Teaser rates. Some ARMs come with a starting rate that's below the fully indexed rate (the index rate plus margin). The teaser rate may last only a short time, sometimes only a few months, then convert to a fully indexed rate. This can lead to "payment shock" for borrowers who aren't prepared for a significant increase in their monthly payment. Under new rules that go into effect in early 2014, lenders who want to make "qualified mortgages" (which protect them from having to buy back failed mortgages from investors and guarantors) must determine whether you can afford the monthly payment based on the fully indexed rate, not just the teaser rate, before they approve you for a loan.

Other Features

Caps on interest. There are two types of interest-rate caps. Lifetime caps limit the interest-rate increase over the life of the loan. With a "5% lifetime cap," your rate can't increase more than five percentage points over the initial rate no matter how high the index rate climbs.

Periodic caps limit the interest-rate increase from one adjustment period to the next. For example, your mortgage contract could say that your rate could rise only two points at each adjustment period--a typical limit--even if the index rate increases, say, four points in one year. When rates rise rapidly, periodic caps cushion borrowers from overly steep payment hikes.

Caps on payment. ARMs with payment caps rather than rate caps limit your monthly payment increase at the time of each adjustment, typically to a certain percentage of the previous payment. They can create negative amortization (meaning the outstanding mortgage balance increases) when rising interest rates would dictate payments higher than the cap permits. The difference in such cases is added to the loan principal, and as a result your indebtedness can actually grow while you think you're paying off the loan. ARMs with payment caps are rarely offered and should be avoided. The new "qualified mortgage" rules forbid a negative amortization feature.

So-called "option," "pick-a-payment" or "pay-option" ARMs, which were popular during the last real-estate boom, often resulted in negative amortization. Each month borrowers could pay their choice of a minimum, interest only, or fully-amortized 15-year or 30-year payment. These, too, have largely disappeared.

Copyright 2013-2014 The Kiplinger Washington Editors

Details and Disclosures

15/15 ARM: Available on purchases and refinances. Not available for applications without a property address (pre-purchase). The initial rate is fixed for 15 years (180 months). When the rate adjusts, your new rate will be the then current index (weekly average yield on US Treasury securities adjusted to a constant maturity of 10 years) plus a margin of one percent (1.000%) rounding to the nearest one-eighth (0.125%). The new rate cannot exceed six percent (6.000%) above the initial rate or cannot be lower than the floor rate of one percent (1.000%).

15/15 ARM Mortgage Payment Example: The information provided assumes the purpose of the loan is to purchase a property, with a loan amount of $100,000 and an estimated property value of $125,000. The property is located in Alexandria, VA and is within Fairfax County. The property is an existing single family home and will be used as a primary residence. An escrow (impound) account may be required as noted below. The rate lock period is 60 days and the assumed credit score is 740. At a 3.125% interest rate, the APR for this loan type is 3.225%, other rates and terms available. The monthly payment schedule would be $428.38 for the first 180 months at an interest rate of 3.125% and $424.66 for the next 180 months at an interest rate of 3.000%. Payments shown do not include taxes or insurance escrows; actual payments may be greater. NOTE: A 1% origination fee applies to this loan. The origination fee may be waived by adding 0.25% to the selected rate. The application of points will be determined by the loan to value (LTV) ratio. Points are the responsibility of the borrower and not covered in promotions. The maximum loan –to –value (LTV) for 15/15 ARMs is 80% and combined loan-to-value (CLTV) is 95%.

Investment properties not eligible for offers.

All Mortgage Programs: The application of points will be determined by the loan-to-value (LTV) ratio combined with certain representative credit scores. Points also apply to certain cash-out refinance transactions, certain condominium transactions, and some transactions with subordinate financing.

Origination fees may apply to certain programs. The origination fee may be waived by adding 0.25% to the selected rate.

¹For a purchase transaction, the rate cannot be locked until PenFed has received a ratified sales contract executed by all required parties.

The applicant is responsible for the following fees and costs at the time of closing. Origination fee, appraisal fee, tax service fee, CLO access fee, title fees, transfer tax fees, credit report fee, flood cert fee, recording fee, survey if required and work verification fee, escrow reserves and interest due until first payment, other cost may be included due to program specific circumstances. This is not intended to be an all-inclusive list.

If a loan is withdrawn, the applicant may not reapply for at least 90 days from the date the application was withdrawn.

Conforming Mortgages: For loan amounts from $25,000 to $417,000 (Loan amounts up to $625,500 are available in Alaska and Hawaii). The maximum combined loan- to-value (CLTV) is 95%; 80% LTV and above are subject to private mortgage insurance (PMI). The maximum LTV and CLTV for condominiums is 80%. The maximum loan –to –value (LTV) for 15/15 ARMs is 80% and combine loan-to-value (CLTV) is 95%.

Jumbo Mortgages: For loan amounts above $417,000 to $750,000 (Loan amounts from $625,500 to $750,000 are available in Alaska and Hawaii). The maximum loan-to-value (LTV) is 80% and the maximum combined loan-to-value (CLTV) is 90%. The maximum LTV and CLTV for condominiums is 80%.

Super Jumbo Mortgages: For loan amounts above $750,000. 5/5 ARMs up to $4 million and Fixed Loans up to $2 million. The maximum loan-to-value (LTV) and combined loan-to-value (CLTV) is 80%. In DC, MD and VA only, the maximum LTV and CLTV for condominiums as a primary residence is 80%. The LTV and CLTV in all other states for condominiums is 75% The LTV and CLTV for second home condominiums is 70% in all states.

All rates and offers are in effect as of March 2015, offered for a limited time and subject to change without notice. Other restrictions may apply. Contact your PenFed mortgage consultant for any applicable additional restrictions and details about your loan. To receive any advertised product you must become a member of PenFed by opening a share (savings) account. Federally insured by the NCUA.

We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

This credit union is federally insured by the National Credit Union Administration. Rates are current as of March 2015 unless otherwise noted and are subject to change. APY = Annual Percentage Yield APR = Annual Percentage Rate

Estimated Market Value of Property

$

Mortgage Balance

$

Loan to Value Factors *

Requested Loan Amount

$

Term of Loan

Years

Your Interest Rate

Monthly Payment

* In states other than Florida, Michigan, and Texas, the maximum owner occupied CLTV (combined loan to value) for a PenFed Home Equity Loan is 85%, non-owner occupied is 75%. In Florida and Michigan, the maximum owner occupied CLTV is 70%. In Texas, the maximum owner occupied CLTV allowed is 80% and non-owner occupied is CLTV 75%. Additional restrictions apply in Texas, so please ask a representative for details. The maximum CLTV on condominiums in all states is 70%.